A New Categorization of the U.S. Economy: The Role of Supply Chain Industries in Performance

Abstract

Supply chains have been an important part of the discussion of the American economy. However, this discussion has lacked an empirical definition of who are the suppliers and this has limited our understanding of their role in national performance. This paper introduces a new industry categorization that separates Supply Chain industries (i.e., those that sell their goods and services primarily to other businesses or governments) from Business-to-Consumer (B2C) industries (i.e., those that sell primarily to consumers). Our analysis uses the 2002 Benchmark Input-Output Accounts from the U.S. Bureau of Economic Analysis to identify Supply Chain and B2C industries. Using this categorization we examine the supply chain economy during the 1998–2013 period across several metrics: the number of firms, employment, wages, labor occupation composition, patenting, and growth dynamics. We find that supply chain industries comprise a large segment of the economy. In particular, there are many suppliers of traded services both in terms of employment and number of firms. Supply chain industries, especially traded services, have higher average wages than other industry segments. This can be explained in part by the larger relative presence of STEM (Science, Technology, Engineering and Math) occupations in supply chain industries, and in particular in the suppliers of traded services (though non-STEM occupations such as accounting, finance, managerial, and logistics are also important to service suppliers). While STEM occupations are most prevalent in suppliers of traded services, patents are primarily concentrated in manufacturing suppliers. Together, these observations suggest that much of the U.S. innovative activity happens in the supply chain economy. We also find that the employment in the supply chain economy has been evolving away from manufacturing and towards services for the period under examination (1998-2013), with suppliers of traded services experiencing high growth in employment and wages. Finally, the analysis of the growth trends during the business cycles reveals that the supply chain economy is particularly susceptible to economic crises (2001-2002; 2007-2009). Overall, our findings call for targeted policies that recognize that suppliers are a large segment of the U.S. economy, are a mix of manufacturers and service providers, have a diverse and distinct set of labor occupations, drive innovation, and are vulnerable to crises.